Long‐Run Aggregates Under Constant Returns
Long‐Run Aggregates Under Constant Returns
A weakness of the paper ’Aggregation in the short and long run’ (Ch. 25) is the use of strong convexity assumptions––these assumptions seem easier to justify in the short run, rather than the long run. In this paper (which is from an unpublished typescript from Nuffield College, Oxford, 1982), all firms, actual and potential, have constant‐returns‐to‐scale technologies, hence, those that actually exist in any particular equilibrium are determined endogenously, but their outputs are of course undetermined; this is consistent with the structure of many general equilibrium models. Gorman begins by assuming that there is an input aggregate in each firm as well as in the economy as a whole; as in Ch. 25, this implies the existence of an output aggregate in each firm and in the economy. Equilibrium is characterized by zero profits and a finite production plan for every firm, and this in turn determines those firms that exist in the equilibrium. The main result is one seen in the previous aggregation papers: an aggregate exists if and only if it is deployed efficiently among those firms producing positive outputs.
Keywords: aggregates, aggregation, constant returns, equilibrium, input aggregates, long‐run aggregates, output aggregates, profits
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